Chapter 6 Issues Management and Crisis Management LEARNING OUTCOMES After studying this chapter, you should be able to: 1. Distinguish between the conventional and strategic approaches to issues management. 2. Identify and briefly explain the stages in the issues management process. 3. Describe the major components in the issues development process and some of the factors that have characterized issues management in actual practice. 4. Define a crisis and identify the four crisis stages. 5. List and discuss the major stages or steps involved in managing business crises. TEACHING SUGGESTIONS INTRODUCTION – The decision-making processes known as issues management and crisis management are becoming much more important for organizations, as their operating environments become turbulent, corporate scandals erupt and we become an increasing litigious society. This chapter introduces the concepts of issues management and crisis management, distinguishes between them, and describes their similarities. The authors utilize the conventional approach toward issues management, not because it is favored, but because it concentrates on public, social, and ethical stakeholder issues. KEY TALKING POINTS – This chapter allows students to get into the ―juicy‖ cases of issues that companies deal with on a daily basis—worker relations, pollution and sustainability, Affirmative Action, product liability, and many others. Although the chapter focuses on the process of issues and crisis management, students should be given ample opportunity to discuss actual and hypothetical crises. Case analyses will provide a glimpse into the complexities involved in both of these increasingly important areas of management. Students should be allowed to both critique the issues/crisis management processes utilized by companies that have experienced them (e.g., Johnson & Johnson‘s Tylenol case or Dick Grasso, former chairman of the New York Stock Exchange) and try their hands at ―managing‖ a crisis or two through cases. The group cases at the end of this section provide a good opportunity for students to practice managing a crisis. In addition to the cases provided in the textbook (see below), Bronwyn Fryer provides a short, but engaging case, ―When No News is Good News,‖ in the April 2001 issue of Harvard Business Review. In addition to this case, HBR also has an interesting article on crisis management entitled ―Predictable Surprises: The Disasters You Should Have Seen Coming‖ (Watkins and Bazeman, March 2003). After spending the previous chapters providing necessary background information and concepts, this chapter provides an excellent opportunity to fully engage students in animated classroom discussion about topics they will find fascinating. Business and Society Chapter Notes PEDAGOGICAL DEVICES – In this chapter, instructors may utilize a combination of: Cases: The Body Shop‘s Reputation is Tarnished The Body Shop International PLC (1998-2007) HP: The Pretexting Predicament Sweetener Gets Bitter Reaction Nike, Inc. and Sweatshops Coke and Pepsi in India: Issues, Ethics, and Crisis Management Chiquita: An Excruciating Dilemma Between Life and Law DTC: The Pill Pushing Debate Easy Credit Hard Future Big Pharma‘s Marketing Tactics Firestone and Ford: The Tire Tread Separation Tragedy McDonald's: The Coffee Spill Heard ‗Round the World The Hudson River Cleanup and GE Safety? What Safety? Little Enough or Too Much? The Betaseron Decision (A) Ethics in Practice Cases: Johnson & Johnson‘s Tylenol Response Crisis Management: When to Repent? When to Defend? Search the Web: Kroll - http://www.kroll.com/services/corp_prep/issues-management/ Institute for Crisis Management – http://www.crisisexperts.com Lexicon – http://www.crisismanagement.com Wilson Group – http://wilson-group.com Video clips: Protesting Nike Sweatshops Boeing Going Green Boeing 787 Dreamliner Power Point slides: Visit http://academic.cengage.com/management/carroll for slides related to this and other chapters. LECTURE OUTLINE I. ISSUES MANAGEMENT A. Two Approaches to Issues Management B. The Changing Issue Mix 1. A Portfolio Approach Business and Society Chapter Notes C. Issue Definition and the Issues Management Process 1. Model of the Issues Management Process 2. Identification of Issues 3. Issues Selling and Buying 4. Analysis of Issues 5. Ranking or Prioritization of Issues 6. Formulation and Implementation of Responses 7. Evaluation, Monitoring, and Control D. Issues Development Process 1. Illustrations of Issue Development E. Issues Management in Practice F. Issues Management Is a Bridge to Crisis Management II. CRISIS MANAGEMENT A. The Nature of Crises 1. Types of Crises B. Four Crisis Stages 1. Prodromal Crisis Stage 2. Acute Crisis Stage 3. Chronic Crisis Stage 4. Crisis Resolution Stage 5. Poorly Managed Crises C. Managing Business Crises 1. Three-Stage Model a. Identifying the Crisis b. Isolating the Crisis c. Managing the Crisis 2. Five Practical Steps in Managing Crises a. First: Identifying Areas of Vulnerability b. Second: Developing a Plan for Dealing with Threats c. Third: Forming Crisis Teams d. Fourth: Simulating Crisis Drills e. Fifth: Learning from Experience 3. Six Stages of Crisis Management a. Avoiding the Crisis b. Preparing to Manage the Crisis c. Recognizing the Crisis d. Containing the Crisis e. Resolving the Crisis f. Profiting from the Crisis D. Crisis Communications 1. Components of Crisis Plans 2. Be First, Be Right and Be Credible E. Successful Crisis Management III. SUMMARY Business and Society Chapter Notes SUGGESTED ANSWERS TO DISCUSSION QUESTIONS Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence. Although some answers will be more correct than others, students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be ―good‖ answers. 1. Students will obviously differ in their selection of the ―most important‖ stage of issues management. Whichever stage they select, they should be able to provide a list of logical, relevant reasons for their selections. Better answers will recognize that all of the stages are important to effective issues management. If there is a breakdown in any one of the stages, the whole process suffers. Many students may note that prioritization of issues is the most important stage, as corporate America can fail to have a successful issues management process if they get bogged down in all the possible issues that could confront the company. Effective use of corporate resources requires a company to rank those issues that are most likely to occur and have a major impact on the company. However, if a company fails to formulate and implement an appropriate response to specific issues, the entire company could face financial ruin. 2. It should be interesting to see what types of issue categories students identify. Some that come to mind are job security, continuing education requirements, technology and terrorism. Some specific crises not listed include sexual abuse cases against Catholic priests; allegations of financial fraud at Fannie Mae in late 2004; and ConAgra Foods management of the salmonella contamination of its Peter Pan peanut butter. 3. Again, it will be interesting to see what students come up with for answers to this question. Examples for each force category might include: Events – technological unemployment (machines replacing workers) Authorities/Advocates – Desmond Tutu (South African Bishop and peace activist) Literature – The Divine Right of Capital (reform of corporate governance) Organizations – MoveOn.org (liberal political group using the Internet) Political Jurisdictions – State of Michigan (panels to review medical malpractice suits) 4. A crisis (that students may be familiar with) is the fire that occurred at Malden Mills on December 11, 1995. Malden Mills is the company that invented fleece, and markets its brand under the name Polartec. The fire destroyed virtually the entire plant in a single night. Because the fire was completely unexpected, there was no prodromal stage. The acute crisis stage took place as the fire burned—fortunately, no one was killed, although a few workers were injured. For Malden Mills, the chronic crisis stage was, in some ways, short-lived, and in other ways, still lingers today. Because of the owner‘s commitment to rebuild the plant, his excellent relationship with his workers, and tremendous goodwill Business and Society Chapter Notes generated by the company‘s ethical business dealings, the plant was completely rebuilt in about a year. However, because of a heavy debt load from rebuilding the plant, and failure to patent the process for making fleece, Malden Mills filed for bankruptcy in 2001. While the company emerged from the 2001 bankruptcy, it filed for bankruptcy again in January 2007. In February 2007, it was revealed that the assets of Malden Mills would be sold to Chrysalis Capital Partners, and the name of the company was changed to Polartec, LLC. The immediate crisis of rebuilding the plant and producing material took place quickly, as mentioned above. At the end of the day, this crisis was resolved when the assets of the company were sold and the company was renamed. 5. An excellent example of the effects of the 9/11 attacks is the story of Sandler O‘Neill. A small investment banking firm with offices in the World Trade Center, Sandler O‘Neill lost most of its employees, all of its equipment, and many of its records of transactions in process. Because of its reputation as an honest firm and good working relationships with its customers and competitors, Sandler O‘Neill was back in business within a few months, and closed all of the deals in which it was involved prior to 9/11. The cover story of Fortune magazine on January 21, 2002 paints a compelling picture of the crisis that this firm endured, and its efforts to recover from it. One way that the firm is preparing for future terrorism is by renting space in a nondescript office building that is unlikely to be a target. As evidenced by 9/11, terrorism is a likely crisis for which business must prepare. The difference between preparing for terrorism and ethical scandals is the degree of control. If a firm keeps close watch on its board, top management and employees, it is more likely to foresee ethical scandals that could arise. Terrorism, on the other hand, requires individuals to conceive of possibilities that may have never occurred in the past. Consequently, preparation for potential terrorist attacks requires management to use unlimited imagination to assist with plans for preparation in the event of such a calamity. While this is a large task, it is possible. The law firm Sidley Austin Brown & Wood LLP had such a crisis plan in place on 9/11 and managed to account for all but one of its employees by the morning of September 12th. Further, they had backup tapes and systems for their computer systems and had a forward thinking insurance policy in place. As a result, the firm was able to move quickly after 9/11 to keep itself moving forward. GROUP PROJECTS Group Project 1 – A Sticky Situation Divide students into groups of four to five students. Ask students to review the following: ―Imagine that is February 2007 and that you are a member of top management at ConAgra Foods. The company has been notified that certain jars of one of its products, Peter Pan peanut butter, have become contaminated with salmonella. Health officials believe that the salmonella contamination in the peanut butter has led to illness in hundreds of people in 47 states.‖ Business and Society Chapter Notes Students should prepare a written memo to the company‘s CEO addressing how the company should handle the crisis. Specifically, students should address (1) corporate strategy with respect to any recall, (2) any product modifications, (3) corporate response to injured parties, and (4) the communications the company will use in connection with this event. The instructor may want to review outstanding ideas presented in the memos with the entire class. Further, the instructor may want to note how the company actually handled this crisis (specifically noting that the company instituted a recall on certain jars and shut down production for a few months). The instructor also may want to do additional research to determine the effect that this crisis had on the Peter Pan peanut butter brand and on ConAgra foods generally. At the time of this writing, Peter Pan peanut butter only had been returned to shelves for two months. Group Project 2 – Emergency Planning Divide students into groups of four to five students. Distribute your college‘s or university‘s emergency plan and/or emergency procedures. Ask students to identify whether the procedures are practical and useful. Ask students to consider whether any revisions to the plans and/or procedures are necessary. Finally, group leaders should assess whether students were familiar with the plans and procedures prior to distribution of the documents. This in itself is a measure of success of the plans and procedures, as implementation of such plans and procedures prove difficult when students and faculty do not know the steps that they should take in certain events. Students should develop a proposed emergency plan and/or emergency procedures document for your university and may use the current plans and procedures as a starting point.